Sunday, November 4, 2007

Subprime: The hits keep coming

The stunning magnitude of the subprime losses at investment banks is just beginning to be revealed, and the write-offs are nowhere near complete. The contagion to the troubled $925B credit card market has just begun. Many of these institutions will have to take an additional write-down of $10B each to come clean and properly align their books with the actual market value of troubled sub-prime investments. The infection of the other derivative markets such as credit cards and commercial paper could leave these banks with additional destabilizing losses which comparatively would make subprime appear to be a minor headache.

“Merrill Lynch analysts, for example, calculate that mid-quality ABX debt is on average now trading at 40 cents in the dollar. But these analysts say that Merrill Lynch itself has only written this type of debt down to 63 cents in the dollar - and UBS is still assuming this debt is worth 90 cents. "Simple math would imply that UBS needs an additional $8bn write-down [on its $15.4bn holdings] if the ABX pricing is correct," Merrill says.”

What's the damage? Why banks are only starting to uncover their subprime losses

An earlier post discussed the unsettled credit card debt derivative market:
Quick Takes: The Next Subprime

In additional news today…
Citigroup CEO Resigns; Interim Named
Citi to take an additional $8 billion to $11 billion in writedowns.